Mushrooms are well documented in ancient texts on traditional medicines, with accounts describing their phenomenal healing powers. Mushrooms have a long history of usage in traditional medicine to avert and treat various illnesses. This chapter gives an insight on the mushroom characteristics, their bioactive compounds and functional properties, potential application in cosmeceuticals, cosmeceutical formulation and commercial potential for use in cosmeceutical industries. Mushrooms belong to the group of macrofungi, Ascomycetes and Basidiomycetes. The diversity of mushrooms has attracted attention as a source for new compounds with new mode of action against severe diseases. Mushrooms are important sources of natural bioactive proteins, with their protein contents exceeding those found in most vegetables. Mushrooms produce a variety of enzymes, such as laccases, lignin peroxidases, manganese peroxidases, oxidase of aryl alcohol, dehydrogenases of alcohol, or quinone reductase, xylanase, and cellulase for degradation of lignocellulose substrates.